51% of advisers concerned contingent charging ban will lead to advice fall

Fifty-one per cent of advisers are concerned that the Financial Conduct Authority’s proposed ban on contingent charging will lead to a fall in the number of people taking up advice, according to Aegon.

The practice of contingent charging sees an advisers only charging a client if they go through with a transfer on the recommendation of the adviser. The method has been criticised after research by the FCA found that 69 per cent of consumers that were advised to transfer in the period between the introduction of pension freedoms and September 2018. The regulator is concerned that contingent charging leads to bias advice in favour of transferring.

In addition, the FCA has also confirmed that it is unable to allow a more personalized approach to pre-advice triage on DB transfers as this would be classed as regulated advice. However, Aegon’s research found that 58 per cent of advisers believe the lack of a triage facility is harming the market.

Therefore, Aegon believes that this and the proposed ban on contingent charging, places considerable pressure on the proposed ‘abridged advice’ to plug the advice gap. Here, advisers can offer a new service to identify and ‘filter out’ in a more cost effective way DB members for whom transferring is unlikely to be suitable,

The FCA has recognised its proposals are likely to lead to fewer people seeking advice but believes proposed ‘carve-outs’ for certain groups along with abridged advice will limit the impact on the advice gap.

Whether to allow contingent charging on DB advice has proved contentious with the industry expressing a range of views. Currently, it is for each adviser firm to decide whether or not to offer this option, but the findings show that half of advisers think a ban will result in demand for advice falling, with a quarter (28 per cent) remaining neutral and only one in five (21 per cent) confident banning it won’t worsen the advice gap.

Aegon pensions director, Steven Cameron, said: “The FCA has recognised the difficulty some individuals will face if they have to pay for advice upfront and we welcome the proposed ‘carve-outs’ for those with specific life shortening conditions or with significant financial difficulties.

“But this will only help a small minority. For others, the key may be to make the new form of ‘abridged advice’ workable. Firms may offer this short form of advice and while it can only produce a recommendation not to transfer, it may help weed out those for whom transferring is unlikely to be suitable, saving them money and freeing up adviser time to spend on providing full advice to those more likely to benefit from transferring.”

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